Market Report: C&W falls despite talk of interest in Maltacom

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Cable & Wireless has been much talked of as a bid target in recent weeks but the speculation surrounding the telecoms group yesterday suggested it may be mulling an acquisition of its own. C&W is said to be one of three companies to express an interest in acquiring control of Maltacom.

The Maltese government is looking to dispose of its 60 per cent stake in the local fixed-line provider and C&W is seen as the front-runner to win it. The group could easily afford a deal given its £2bn cash pile. Dresdner Kleinwort Wasserstein believes it would probably have to pay about £170m for the majority shareholding and argues that Maltacom would fit nicely into its National Telcos division.

Dresdner said: "We'd expect C&W investors to welcome the deal as it would continue the diversification of earnings at the National Telcos division." The German broker pointed out that C&W has an impressive record when it comes to bolt-on acquisitions. It bought control of Monaco Telecom last year and since then has been able to significantly boost the company's financial performance. Dresdner is convinced that C&W, down 0.75p to 121.25p, will have little trouble in seeing-off private-equity bidders for Maltacom, given this track record.

Elsewhere in the FTSE 100, Legal & General rose 2p to 116.25p after bullish comments were made by UBS. Repeating its "buy" recommendation on the insurer the Swiss broker tipped L&G to continue to gain market share. It also suggested that a return of cash to shareholders could be on the cards in 2006 as the cash flows of the insurer grow.

Rexam dropped 4p to 515p on reports it may offer about £3bn for the glass bottle business of France's Saint-Gobain. For nearly a month the market has suspected that some form of corporate action is on the cards at Rexam because the company's credit default swaps have soared in value. These derivatives give the owner insurance against a loan default by the company. Analysts say that either a private-equity bid for Rexam or a major acquisition by the packaging specialist would cause the group's debt to balloon, making a default more likely and protection against such a scenario more valuable.

However, Credit Suisse First Boston was sceptical that Rexam would want to buy the Saint-Gobain bottle business. It points out that expansion into the glass arena is not a priority for Rexam at present. In fact, the group has said it is more interested in value-added niche areas such as plastic packaging. According to the Swiss broker's calculations, Rexam would need to launch a major rights issue to afford such a deal. This would contradict recent assurances from its management that the company has no plans to issue new equity any time soon.

The FTSE 100 itself dropped 46.4 points to 5,477.4 as a wave of profit-taking hit blue chips. Vodafone was once again in retreat, falling 2p to 126p, after Lehman Brothers removed the mobile phone giant from its recommended portfolio. The oil sector was hit by worry that next week's pre-Budget report could see the Chancellor impose a windfall tax on North Sea oil and gas producers. JP Morgan believes this will be the case. "We believe that the recent press speculation of an increase in UK oil industry taxes is well founded", the broker said. It calculates that a 10 per cent tax rise will boost the Government's revenues by nearly £10bn. Such a move would pretty much plug the shortfall in the public finances which is estimated by JP Morgan to stand at £11bn. Bridgewell Securities warned that Venture Production, down 3p to 517p, Dana Petroleum, steady at 970p, and Tullow Oil, 5.75p lower at 265p, are most the exposed to such a development.

MFI Furniture ticked 0.5p higher to 71.25p after Cycladic Capital Management, a US investment fund, declared a 3.1 per cent stake in the retailer. MFI is expected to issue a trading update on Thursday and any sign of a recovery at the group is likely to send its shares soaring, given the large short position in the stock.

Michael Page gained 6p to 260p on talk that the Swiss recruitment player Adecco is mulling a bid for the group. FKI ticked 0.25p to 112p after Dresdner Kleinwort Wasserstein ushered its clients into the engineer before the company's interim results on Thursday.

Lower down the pecking order, PlusNet rose 7.5p to 270p after unveiling the purchase of a small internet services provider called Parbin. Hamworthy ticked 3p higher to 297.5p on talk of strong trading at the oil and gas services group.

Finally, Debt Free Direct soared 18.5p to 216.5p after the debt-advice group posted forecast-busting interim results and upgraded its estimates for the full year.

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